Audit cites Lake Station’s money struggles

A state audit shows the city of Lake Station in dire financial straits, exacerbated by poor record keeping.

The city’s general fund, which covers payroll and operating expenses, has lapsed into the red for 11 straight years, and there were negative balances in water and utility funds.

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The audit attributes the problems to a “structural imbalance” in revenues and disbursements that’s carried forward for the past eight years due to state tax caps, low tax collection rates and overspending by prior administrations.

The State Board of Accounts audit stated it couldn’t offer an opinion on the city’s finances because it didn’t maintain proper accounting records.

“Although the City has a plan in place, and it will take several years to alleviate the large deficit,” the audit stated.

At the end of 2017, the audit reported the city’s overall cash and investment balance was $3,811,653. It cited a negative balance of $1,692,062 in the general fund; a negative balance of $41,337 in three payroll withholding funds and a negative $145,985 in the water utility operating fund.

The audit said the water deposit’s fund cash balance at the end of 2017 was less than the water meter deposit liability to its customers of $147,192.

And, the water deposits fund shares a bank account with the water utility operating fund, which was overdrawn at the end of 2017. That resulted in the operating fund relying on customer deposits to finance its operations.

Compounding the financial issues were inadequately trained employees who failed to keep records in order, the audit concluded.

Clerk-Treasurer Brenda Samuels, who took office last June following the death of Joseph Castellanos, said the city has established a set procedure for making sure employees have preliminary training.

“In 2016 and 2017, many supervisory responsibilities appear to have been non-existent along with inexperienced personnel,” Samuels stated. She blamed the bank account lack of reconciliations to poor personnel training.

She said in the water department, for example, there were four pages of adjustments required to correct errors in 2016-17.

“That’s only a fraction of the errors, there was an error on every payroll starting in 2016,” she said.

She said all prior inter-fund loans were re-paid in 2018 and the proper steps to obtain city council approval are being taken.

City officials stated the water deposits and utility funds’ negative cash balance was due to a bookkeeping error and transfer of funds into an incorrect account. The city said the error was corrected last year, taking both accounts to a positive balance.

Even without the sale of its utility plant, the city stated it expects to reduce the negative balance in its general fund with a target of a positive balance within four years.

“Overall finances have improved over the last couple of years,” said Mayor Christopher Anderson. “Our general fund is the one suffering.”

The audit cited the city’s 68 percent tax collection rate as one of its key problems, along with the tax caps which cost the city $1.6 million last year and $1.2 million in 2017, according to the Department of Local Government Finance.